CFPB Will Keep CUs Busy

Agency puts priority on consolidated mortgage disclosures.

May 21, 2012

Due in large part to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) will keep us very busy.

CFPB’s immediate focus is on completing various rulemakings mandated by the Dodd-Frank Act and working on proposed rules it inherited from the Federal Reserve.

CFPB has made the consolidation of Truth in Lending Act (TIL)/Real Estate Settlement Procedures Act (RESPA) mortgage disclosure forms a priority because streamlining the existing, overlapping forms could significantly benefit both consumers and financial institutions.
Here’s a summary of some rules CFPB is currently working on.

Consolidated disclosures

CFPB’s Know Before You Owe project recently asked for comments on the latest (and possibly final) draft of a sample mortgage form. This draft combines early disclosures required by TIL (Regulation Z) and RESPA into one document called the “loan estimate.”

A separate “settlement disclosure” form is being developed to combine the TIL disclosures provided at loan closing with information in the RESPA HUD-1 Settlement Statement. The proposed rule on consolidated disclosures will be issued by July 21.
CFPB may also make these related changes:

Applying RESPA’s zero tolerance to estimated charges of service providers affiliated with or selected by the lender;

Altering how financial institutions handle re-issued good faith estimates;

Implementing new recordkeeping requirements for the new combined forms in a machine-readable format;

Creating a new application definition;

Requiring the lender to be either solely responsible for delivering the settlement disclosure to the consumer or to be responsible for preparing TIL-required information on the settlement disclosure while the settlement agent prepares the RESPA-required information;

Requiring the settlement disclosure to be provided three business days before the loan closing; and

Expanding the finance charge definition to eliminate many of the exclusions now present in Reg Z.

Ability-to-repay rules

The Fed published a proposed rule in May 2011 to implement amendments to TIL made by the Dodd-Frank Act. Reg Z currently prohibits creditors from making higher-priced mortgages without considering the consumer’s ability to repay the loan.

The proposal would expand the scope of the ability-to-repay requirement to cover any consumer credit trans-action secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan). The proposal would also establish standards for complying with the ability-to-repay requirement, including the issuance of a “qualified mortgage.”

The proposed rule also imposed a general ability-to-repay standard that would require lenders to consider factors including income and assets, employment status, monthly mortgage payment, the borrower’s other debt obligations, debt-to-income ratio, and credit history, to name a few.

In addition, the proposed rule would require adjustable-rate mortgages to be underwritten at the fully indexed rate (using the maximum margin).

The proposal would also implement limits on prepayment penalties and require creditors to retain evidence of compliance with the rule for three years after a loan is consummated. CFPB was working to issue a final rule in April, but it’s not likely to do so until midyear.

Mortgage servicing

CFPB is developing proposed regulations to implement amendments to TIL and RESPA under the Dodd-Frank Act. The amendments require consumers to receive periodic statement disclosures regarding their mortgages. It also would impose requirements regarding the imposition and cancellation of force-placed hazard insurance, the handling of payoff amount requests, and other issues related to mortgage servicing.

CFPB also is part of an interagency process among federal financial services regulators to consider broader issues regarding national servicing standards. It may issue proposed regulations implementing the mortgage servicing requirements in July.

MICHAEL MCLAIN is CUNA’s assistant general counsel and senior compliance counsel. Contact him at 608-231-4185.